Norfolk Southern (NSC) Rejects Canadian Pacific’s Offer

Shares of Norfolk Southern Corporation (NSC) were down -2.38 or -2.56 percent to $90.73 in Friday’s premarket after news early this morning that the company’s board of directors had rejected Canadian Pacific’s (CP) indication of interest in acquiring the company. Norfolk Southern Corporation stock closed at $93.11, up +0.96 or +1.04 percent in Thursday’s regular trading session.

Norfolk, Virginia based Norfolk Southern Corporation is the holding company for the Norfolk Southern Railway, the second largest railway in the eastern United States.

The Railway was completed in 1894 and was known as the Southern Railway. The company operates 20,000 route miles in 22 United States and the District of Columbia. Norfolk Southern offers service to every major eastern seaport including nine lake ports and 10 river ports with the most extensive intermodal railway network in the Eastern United States.

Canadian Pacific’s offer first surfaced on November 9th, when talk of the deal fueled a rally in Norfolk Southern stock. Norfolk Southern received a letter from Canadian Pacific on November 17th outlining the offer, which is valued at $28.4 billion. According to Norfolk Southern’s release this morning, the indication of interest from Canadian Pacific — which consists of an unsolicited, non-binding, low premium offer of $46.72 in cash and a fixed exchange ratio of 0.38 shares in the new company — “substantially undervalues Norfolk Southern”.

On November 20th, Canadian Pacific’s Chief Executive Officer, Hunter Harrison said in an interview with Bloomberg that to get the deal moving would require “a little more money”. Harrison, added, “I prefer not to use the word hostile -- you all can describe it as you see fit, we’re going to work diligently to get to the shareholders. They deserve to see this, to understand it. We’ve already at their request shared the strategy. Some of them came to us and said: ‘Make a move.’ They’re big holders. They’re players, and there’s not only one.”

James A. Squires, Norfolk Southern’s Chairman, President and Chief Executive noted in the company’s press release this morning that the merger with Canadian Pacific would be rejected by the United States Surface Transportation Board or STB, and that, “Even if the proposed combination were ultimately to be cleared, it would be subject to a wide range of onerous conditions that would reduce the value of the stock consideration that has been proposed.”

Mr. Squires concluded saying that, “We believe that Canadian Pacific's short-term, cut-to-the-bone strategy could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base. We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve. Any strategy that hurts our customers and the broader community is highly unlikely to receive regulatory approval and is inconsistent with the delivery of shareholder value over the long-term.”

Today’s rejection of the Canadian Pacific offer by Norfolk Southern will allow for Canadian Pacific to sweeten the deal and take its offer directly to Norfolk Southern shareholders. Norfolk Southern stock is getting hit hard this morning and is already down over four percent at $89.00 per share in the premarket, while Canadian Pacific stock has not yet opened but declined -1.63 percent to $140.91 per share in yesterday’s regular trading session. Before this morning’s action, Norfolk Southern stock was up +16 percent since the deal was announced and Canadian Pacific stock was up over +5 percent.

Amazon captured 36.1 percent of the more than $3 billion Cyber Monday revenues.

Published on Dec 4, 2015

By Jay Hawk

Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.